A Beginners’ Guide to Libra: What It Is and How to Trade It

Libra, Facebook’s proposed cryptocurrency, has caused the cryptocurrency community to go into a frenzy. It all began in May of 2018 when Facebook created a blockchain subsidiary. In December 2018, the CEO of the subsidiary, David Marcus, disclosed plans to create a digital currency. Finally, in June 2019, Facebook officially released a whitepaper, announcing its intentions to launch ‘Libra’ sometime in the first half of 2020.

Based on the declaration, the Libra project will be overseen by the subsidiary called ‘Calibra.’ Calibra is also the proposed name for the digital wallet which will function as a stand-alone app and will be easily accessible on Whatsapp and Messenger.

As a remedy to the volatility problem plaguing other cryptocurrencies, Libra will be a ‘stablecoin.’ To make it even more stable, it will be tethered to four major fiat currencies. These currencies include the US Dollar, the British Pound, the Euro, and the Japanese Yen.

Unlike other stablecoins, Libra’s value will not be constant. Instead, it will have natural swing cycles based on market conditions just like fiat but will not be as volatile as a cryptocurrency. David Marcus asserts that it will function more like a fiat than crypto.

Libra’s primary goal is to provide hitch-free transactions to the unbanked public across the globe. It is estimated that about 2 billion people on this planet do not have a bank account while there are more than 5 billion people who own and use mobile phones. Almost all of the said 5 billion people have access and use the internet and social media. At the moment, Facebook boasts of about 2.4 billion monthly active users across the globe.

That said, Facebook plans on taking advantage of this large audience to encourage the adoption of Libra. Libra aims at using this reach to provide quality transaction services for everyone, especially to the unbanked public.

Apart from being a stablecoin, listed below are other core features of Libra:

1. It utilizes a unique consensus mechanism known as LibraBFT.
2. It utilizes smart contract coding through the “Move” programming language.
3. It will be run by the self-sufficient Libra Association which will comprise about 100 members by the time it launches. Firms like Uber, MasterCard, and eBay are affiliated with that association. To join the membership, the aspiring firm has to invest at least $10 million into the project.
4. Libra will start as a ‘permissioned’; blockchain but will eventually evolve into a ‘permissionless’ blockchain over time.

Trading and Investing In (Buying) Libra

When it comes to the global markets, they can either be invested in or be actively traded. The same holds for Libra.
Investing in an instrument doesn’t necessarily need any in-depth or steep knowledge in that instrument. Trading, on the other hand, requires experience, skill, and comprehensive knowledge in price analysis and market trends.

That said, active trading is not for those unwilling to devote adequate time to acquire the proper skills needed to be a successful trader. Aside from skills and experience, active traders also need effective trading tools to give them a better edge to succeed.

However, Libra brings a tweak to these market entry methods. It provides an innovative system for traders at all classes to experience success. The method provided by Libra is social-driven as it uses data obtained from trading communities to create better chances for success. This service is popularly known as a “trading bot.”

By analyzing the trading community and following the latest trends in the sector, helps both professional and amateur traders get the best out of trading. The program even boasts a 96% profitability rate.
This feature helps users bypass the arduous process of reading charts and market activities to make a profit. All these can be done automatically at the click of a button.

Let’s analyze, in detail, the dissimilarities between trading and investing in Libra.

Dissimilarities Between Investing In (Buying) and Trading Libra Investing

1. Investing in or buying Libra means that you own the coin and can transact it in any way you see fit.
2. Investing in Libra entails holding the coin for long periods in the expectation that the value will rise.
3. The coin can be used similarly as traditional fiat i.e for payment for goods or services.
4. It is less risky compared to active trading.

Active Trading

1. Libra trading has an automated bot attribute that is created on a social-based trading system.
2. Active trading doesn’t require you to own the underlying asset, in this case, Libra. You can choose to either buy or sell in this method without owning any coin.
3. There’s a higher a higher tendency to make a profit through trading using the bot.
4. This method has a larger exposure to risk.

Libra Wallets

Currently, there is only one known wallet that can support Libra coins; Calibra. The wallet is going to be available as a stand-alone app and will subsequently be available on other apps.
Calibra will be readily available on Whatsapp and Facebook Messenger. However, the firm also plans on allowing developers to build their wallets for the coin.
Libra and Calibra are both expected to drop this year, however, they are still undergoing finishing touches and are trying to secure approval from global authorities.

Benefits and Downsides Associated With Libra

Benefits

1. Amateur traders are now exposed to having a professional edge thanks to Libra’s ingenious trading algorithm.
2. Libra is expected to receive widespread adoption and use as a result of Facebook’s reach and global dominance.
3. Libra is believed to grow exponentially due to the numerous uses it has.
4. It will be easily accessible to anyone from anywhere as its availability on Whatsapp and Messenger significantly lowers the barrier to entry.

Shortcomings

1. Facebook is known for its flawed security for customer data privacy which has sparked questions over Libra’s user privacy and security.
2. Governments and regulatory authorities across the globe are still battling with Facebook and Calibra over Libra and what effects it could have on the global economy.
3. There are suspicions that Libra might be centralized and not decentralized due to the initial ‘permissioned' blockchain system.

Frequently Asked Questions (FAQs)

Is Libra a digital currency?

Yes. Libra operates on cryptographic security, on a decentralized public ledger, and functions without a central governing system. It also uses a pseudonymous wallet.

Does Libra operate on a blockchain like Bitcoin and other cryptocurrencies?

Yes. Libra makes use of a unique blockchain that is significantly different from the traditional blockchain in some regards. Instead of blocks, it uses a ‘Merkle Tree System’ and is designed to have the capacity to scale to billions of accounts.

What does the ‘permissioned’ blockchain concept mean?

The traditional permissionless blockchain allows just about anyone that has acquired the necessary skills and equipment to become a miner. Although this makes a network very decentralized, it also causes the network to be slow due to the overwhelming amount of nodes. This is why Libra plans to begin as a permissioned blockchain which is slightly centralized. At this period, the members of the Libra Association will oversee the affairs of the network.

What type of stablecoin will Libra be?

Libra will be a fiat-backed stablecoin and will be substantiated by the Libra Reserve which will contain real assets. To help reduce exposure to volatility, the assets will contain government securities in safe, respected currencies and bank deposits.

Who will oversee the affairs of Libra?

Libra will be supervised by a body known as the Libra Association. This association is a union of several firms that invested in the advancement of the project. The Libra Association is a not-for-profit organization that is Swiss-based and will also be tasked with governing the Libra Reserve.

Will Facebook have commanding power over Libra?

No. Once Libra takes off, Facebook will immediately hand over control to the Libra Association. This association will have the Libra Association Council as its presiding authority which will be tasked with voting on decision making and policy changes.

What can I buy with Libra?

Holders of Libra will be able to send and receive Libra into their wallets. Considering that firms like Uber and eBay are among the Libra Association, it is anticipated that you will have the ability to pay for their products with Libra once it is out.

Is Libra trustworthy?

Facebook claims to boing everything practical to make Libra secure and safe. They recently announced that Libra would have a bug bounty scheme which will serve as an incentive for tech enthusiasts to look for flaws in Libra’s e dsystem. Facebook also announced that in the unlikely event of a hack, affected users will be fully reimbursed.

Final Note

The fact alone that it is backed by social media behemoth, Facebook, has placed Libra on the path to certain success. The committee backing Libra has taken time to point out deficiencies and weaknesses in other cryptocurrencies that are not found in Libra.

Also, the innovative algo used by this project has greatly contributed to setting Libra ahead of the pack and onto the path to success. There's no denying that Libra is adequately equipped with the tools for success.

However, with the intense crackdown, it is currently facing from regulatory authorities, it is still unclear what the fate of Libra would be.